Expert Analysis of Today's Market

• The dollar traded lower versus major currenceis on Friday despite a strong US employment report. US nonfarm payrolls rose a much stronger-than-expected 166K in October, compared to the market expected 85K gain; the previous two months were revised a net 10K lower. The US dollar index touched a new low at 76.24 today, the weakest since its inception in 1973. Rumors that Asian and Middle East nations may be close to breaking their dollar peg also pressured the greenback. The Canadian dollar rose to a new record on strong Canadian job growth.


• The EUR/USD touched a new all-time high supported by fresh credit-market concerns as Deutsche Bank said Merrill Lynch may write down an additional $10 billion for losses on collateralized debt obligation and prompt the Federal Reserve to cut interest rates again this year. Despite its overbought condition, the pair may rise further. Our target is 1.46.

Financial and Economic News and Comments

US & Canada

• US employment soared at its fastest pace in five months in October led by strong gains in services. Non-farm payrolls rose a much stronger-than-expected 166K in October, the Labor Department said, up from September’s 96K gain. The unemployment rate held steady at 4.7%.

• Average hourly earnings increased $0.03, or 0.2%, to $17.58. That was up just 3.8% y/y.


• US factory orders unexpectedly rose 0.2% m/m in September, following a revised 3.5% m/m drop in August, the Commerce Department said. A 1.7% m/m decline in durable goods was offset by a stronger-thanexpected 2.1% m/m increase in nondurable goods orders. Ex-transportation factory orders rose 1.4% m/m. Shipments were unchanged and inventories increased 0.6% m/m. Non-defense capital goods orders excluding aircrafts, a proxy for capital spending by businesses, rose 0.6% m/m in September, after increasing 0.1% m/m in August.


• Canadian employment rose a much stronger-than-expected 63K in October and the unemployment rate dropped to 5.8%, a 33-year low, Statistics Canada reported. Average hourly wages rose 4.1% y/y, the third straight month gaining more than 4%. The figures suggest the Bank of Canada will not cut interest rates in the near future.

Europe

• European manufacturing grew at the slowest pace in more than two years in October as the stronger euro and record oil prices weighed on the economy. The PMI manufacturing index for the eurozone fell to 51.5 in October from 53.2 in September, the lowest since August 2005, Royal Bank of Scotland Group Plc said.


• The German PMI manufacturing index fell to 51.7 in October from 54.9 in September, its biggest fall in the survey’s 11-year history, Royal Bank of Scotland said.

Asia-Pacific

• Bank of Japan Governor Toshihiko Fukui said global financial markets remain volatile and the BOJ must implement monetary policy carefully. Although the effect of a US housing recession on Japan has been limited, “we can’t deny the possibility of a further slowdown in the US economy,” Fukui told the fiscal and financial committee of the Parliament’s lower house. He said the BOJ still expects Japan’s economic growth to be sustained and consumer prices to resume rising. The BOJ policy board has no preset schedule for raising rates and must monitor both “upside and downside risks” and the BOJ’s basic stance is to take “early” action, Fukui said.

FX Strategy Update